APR, or Annual Percentage Rate, is the yearly cost of borrowing money expressed as a percentage. It includes not only the interest rate but also certain fees, giving a more complete picture of the cost of credit.
How It Works
If you borrow $1,000 at a 12% APR, the cost of borrowing for one year is about $120 (plus any compounding effects). APR makes it easier to compare loans and credit cards, since it reflects the full borrowing cost rather than just the interest rate.
Why It Matters
- Transparency: Shows the real cost of credit, including fees.
- Comparison: Helps borrowers compare different loan or credit card offers fairly.
Final Thoughts
APR is one of the most important numbers in borrowing. Always check it—rather than just the interest rate—when comparing loans or credit cards.